What does a PITI payment include?

A PITI payment is an acronym that represents the components included in a typical mortgage payment. It consists of Principal, Interest, Taxes, and Insurance.

The principal portion of the payment refers to the amount that goes towards reducing the original loan balance. The interest is the cost of borrowing the money from the lender, calculated as a percentage of the remaining loan balance.

Taxes refer to property taxes, which are levied by local governments, and these are often included in the monthly mortgage payment and held in escrow until they are due. Insurance typically includes homeowners' insurance, which protects the home and its contents, and can also include mortgage insurance if applicable.

Understanding that PITI encompasses these four components is crucial when evaluating the total cost of homeownership. It allows borrowers to get a clearer picture of their monthly financial obligations, beyond just the principal and interest components of the mortgage.